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# Avoiding gift tax for tuition payment

Author Message
Current Student
Joined: 10 Sep 2013
Posts: 11

Kudos [?]: 6 [0], given: 4

GMAT 1: 750 Q49 V42
GPA: 3.5
WE: Consulting (Consulting)

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28 Dec 2015, 01:38
Hello all - I'm looking for advice as to whether this is likely legal or illegal:

Let's say Wharton's first-year tuition is \$70,000
When you take out your loans, you take out for the entire student budget, let's say \$100,000
The school then pays you the balance (\$30,000) so you can pay your rent, buy books, etc.
Okay, understood. But what if my friends/family are loaning me \$30,000 for b-school? This is clearly over the gift tax rate of \$14,000 as indicated here:
http://www.forbes.com/sites/ashleaebeli ... ax-limits/

So my question is: Can my friends/family pay the school directly, thus generating excess which I would receive as a pay out from Wharton? This would effectively avoid any "gifting" because Wharton is sending me the money.

Thoughts?

Thanks!!

Kudos [?]: 6 [0], given: 4

Founder
Joined: 04 Dec 2002
Posts: 15358

Kudos [?]: 27105 [0], given: 4995

Location: United States (WA)
GMAT 1: 750 Q49 V42

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29 Dec 2015, 10:25
Yes, you should be able to that (have your family pay the school directly)

http://www.wsj.com/articles/pay-tuition ... 1435599143 and below as well

Quote:

In certain cases a transfer for the benefit of a person will not be considered a gift even if it exceeds the annual gift tax exclusion. In particular, section 2503(e) of the Internal Revenue Code of 1986 provides for the exclusion of payments for tuition and medical care from gift taxes.

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Kudos [?]: 27105 [0], given: 4995

Current Student
Joined: 14 Nov 2014
Posts: 107

Kudos [?]: 31 [0], given: 0

Location: United States
GMAT 1: 740 Q49 V41
GPA: 3.34
WE: General Management (Aerospace and Defense)

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08 Jan 2016, 07:02
Note: You are NOT taxed if you do not go over the basic lifetime exclusion. The \$14,000 gifting limit is if you don't want to hit the basic lifetime exclusion (which I believe right now is ~5.3M).

Kudos [?]: 31 [0], given: 0

Re: Avoiding gift tax for tuition payment   [#permalink] 08 Jan 2016, 07:02
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